How to Form a North Carolina Nonprofit Corporation

The steps to form a 501(c)(3) nonprofit corporation in North Carolina.

Most nonprofits are
501(c)(3) organizations, which means they are formed for religious, charitable,
scientific, literary, or educational purposes and are eligible for federal and
state tax exemptions. To create a 501(c)(3) tax-exempt organization, first you
need to form a North Carolina nonprofit corporation. Then you apply for
tax-exempt status from the IRS and the state of North Carolina. Here are the
details.

Form Your North
Carolina Nonprofit Corporation

First, you need to form a
nonprofit corporation under North Carolina state law (Chapter 55A, the Nonprofit
Corporation Act (“NPA”)).

1. Choose the initial directors and officers for your nonprofit

In North Carolina, your nonprofit corporation must have at least
one director. Directors must be at least 18 years old, except in certain
organizations involved in youth activities where some directors can be 16 years
old.

2. Choose a name for your North Carolina nonprofit corporation

The name of your nonprofit corporation must be distinguishable
from the name of any other nonprofit corporations, business corporations,
limited liability companies, limited partnerships and
limited liability partnerships operating in North Carolina. In addition, your
name must contain the word "corporation," "incorporated," "company," or "limited, or the abbreviation
"corp.," "inc.," "co.,"or "ltd." See North
Carolina General Statutes 55D-20 and 55D-21 for more on name restrictions.

The articles form from the state has the minimal
information necessary to create a nonprofit in North Carolina. It does not
include language required by the IRS to obtain 501(c)(3) tax-exempt status. To
receive tax-exempt status from the IRS, you'll need certain additional specific
language in your articles, including:

a statement of purpose that meets IRS
requirements

statements that your non-profit will
not engage in prohibited political or legislative activity, and

a dissolution of assets
provision dedicating your assets to another 501(c)(3) organization upon
dissolution.

For more information on IRS requirements for tax exemption, including
sample language, see IRS Publication 557, Tax-Exempt Status for Your Organization, available
on the IRS website. Make sure you include both the state and federal tax-exempt
required language in the articles you create.

4. Prepare bylaws for your North Carolina nonprofit corporation

Before you file your articles of organization, you’ll need to
have bylaws that comply with North Carolina law. Your bylaws contain the rules
and procedures your corporation will follow for holding meetings, electing
officers and directors, and taking care of other corporate formalities required
in North Carolina. Your bylaws do not need to be filed with the state -- they
are your internal operating manual.

5. Hold a meeting of your board of directors

Your first board meeting is usually referred to as the
organizational meeting of the board. The board should take such actions as:

approving the bylaws

appointing officers

setting an accounting period and tax
year, and

approving initial transactions of the
corporation, such as the opening of a corporate bank account.

If you did not name initial directors in your articles of
incorporation, you will want to elect directors at the organizational meeting.
After the meeting is completed, be sure to create minutes that accurately
record the actions taken by the board.

6. Set up a corporate records binder

You should set up a corporate records binder for your nonprofit
to hold important documents such as articles of incorporation, bylaws, and
minutes of meetings. For more information, as well as minutes forms, consent
forms, and other resolutions, see Nonprofit Meetings, Minutes
& Records, by Anthony Mancuso (Nolo).

Obtain
Your Federal and State Tax Exemptions

Now that you have created your nonprofit corporation, you can
obtain your federal and North Carolina state tax exemptions. Here are the steps
you must take to obtain your tax-exempt status:

1. File your Form 1023 federal tax exemption application.

To obtain federal tax-exempt status from the IRS, you will need to complete and file IRS Form 1023, Application for Recognition of Exemption Under Section 501(c)(3) of the Internal Revenue Code. This long and detailed form asks for lots of information about your organization, including its history, finances, organizational structure, governance policies, operations, activities, and more. For line-by-line instructions on how to complete the Form 1023, see How to Form a Nonprofit Corporation, by Anthony Mancuso (Nolo).

Smaller nonprofits may be eligible to file Form 1023-EZ, Streamlined Application for Recognition of Exemption under Section 501(c)(3) of the Internal Revenue Code. This is a much simpler, shorter form that is filed online. Only smaller nonprofits--those with projected annual gross receipts of less than $50,000 and total assets of less than $250,000--are eligible to use the streamlined 1023-EZ application.

See the IRS website for more information on the Form 1023 and Form 1023-EZ filing requirements.

2. Obtain your North Carolina state tax exemptions.

For
information and filing requirements for exemptions from income, property, sales, and other state taxes, go to the Department of Revenue's website and also refer to its publication, State Taxation
and Nonprofit Organizations.

3. Other state reporting and registration requirements.

Depending on your activities and the size of your organization,
you may need to register with the North Carolina Attorney General before doing
any fundraising activities. Check the Attorney General’s website for
information and rules about fundraising and registration requirements for
nonprofits.